[EPA Request for Clarification of Decision]

The Environmental Protection Agency (EPA) requested clarification of a decision concerning the proper appropriation to be charged for a cost overrun of a cost-plus-fixed-fee contract. In a former decision, GAO held that modifications, which increase contract costs but do not exceed the contractually set ceiling, should be charged to the original appropriation obligated for the contract. This conclusion was based on the theory that the Government's obligation under the price adjustment is to fulfill a bona fide need of the original fiscal year and, therefore, may be considered as within the original contract award obligation. However, GAO held that the application of a rule designed to permit the use of prior year funds after their period of availability has expired to preclude use of currently available funds for otherwise appropriate ends would serve no useful purpose. While an agency is required to reserve funds sufficient to cover any contingent liability which would be enforceable by the contractor, it would not be reasonable to require that amounts for cost increases beyond the contract's ceiling similarly be reserved. There is no way to estimate the anticipated amount of such increases or the need for them in any future years, and it would be difficult to consider them as bona fide needs of an earlier year. Upon reconsideration, GAO concluded that increases in cost reimbursement contracts that exceed contractually stipulated ceilings, are not based on an antecedent liability, and are enforceable by the contractor may properly be charged to funds available when the discretionary increase is granted by the contracting officer. Accordingly, the earlier GAO decision was modified to conform to this decision, as were other prior decisions inconsistent with this one.